Let\'s say various members of your staff have submitted funding requests, or dra
ID: 2733441 • Letter: L
Question
Let's say various members of your staff have submitted funding requests, or drafted internal project proposals, and there are five suggested projects that you could fund with each proposed project ranging from between $500,000 to $1,000,000. However, for the upcoming year, your budget only allows a total of $2,000,000 that can be spent on all projects, so there's no way you’ll be able to say "yes" to all of the projects on your staff members' "wish list". How might you decide which of these projects to fund?
Explanation / Answer
There are various methods to evaluate the capital budget projects like Net Present Value (NPV), Internal Rate Of return (IRR), Profitability Index (PI), etc. But NPV method is considerd to best methods among all methods when there are number of projects needs to be evaluated with limited capital budet.
Per the above discussion we will use the NPV method to evalute the projects. And select that combination of Projects that genrates the highest NPV with the initial investment of all projects included in the combinations not exceeding 2,000,000.
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